EA's CEO Isn't the Problem, Folks

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You don't often see a CEO shown the door after his stock hits a 52-week high, but that's pretty much what's happening at Electronic Arts (NASDAQ: EA  ) .

John Riccitiello will be leaving both the company and the boardroom of the country's second-largest video game publisher by the end of next week.

"We have mutually agreed that this is the right time for a leadership transition," offers the press release, but we all know what that means. EA's board wants new blood at the helm, and will now work with an executive search firm to consider internal and external candidates.

Was EA a disappointment under Riccitiello's watch? Definitely. The stock shed roughly two-thirds of its value during his six-year tenure. However, it did hit a 52-week high last week. Despite the challenging climate, EA delivered better-than-expected bottom-line results in each of the six previous periods.

It obviously hasn't been a very easy level for EA to play lately.

Despite the new high, this is still a company whose adjusted revenue and net income plunged 28% and 47%, respectively, in its latest quarter. EA is also now warning that results for its current quarter will come in at the low end -- and possibly even below the low end -- of its earlier guidance.

Is this problem really limited to EA? Isn't the board aware of what's happening in its own industry?

  • Industry tracker NPD Group has been reporting consistently lower hardware and software sales for years. Its latest update found retail sales of video game software plunging 27% last month.
  • As Riccitiello has struggled, larger rival Activision Blizzard (NASDAQ: ATVI  ) hasn't been able to trade higher than the mid-teens. Analysts also see revenue and profitability declining at Activision Blizzard this year. Again, this isn't just a problem at EA.
  • Video game retailer GameStop (NYSE: GME  ) has lowered its same-store sales outlook four times over the past year.
  • A popular thesis last year was that die-hard gamers would come out again when new consoles hit the market. Well, the Wii U rolled out in November. Crickets are still chirping.

If anything, these moves should validate Riccitiello's strategy of attacking the casual and social gaming markets. The acquisitions of Playfish and PopCap Games didn't come cheap, but they did help EA become the top iOS publisher last year. Traditional video game sales are sputtering for everybody, and Riccitiello's decision to move on after Take-Two Interactive (NASDAQ: TTWO  ) rebuffed its buyout offer of $26 -- instead of coming back with a higher price -- was the right thing to do. The company behind the Grand Theft Auto franchise is stuck in the mid-teens.

EA's problem isn't Riccitiello, and investors will realize that when the company's next CEO inherits the malaise.

While Activision and Microsoft have been taking the headlines when it comes to console gaming, Fools following the gaming sector would do well to also keep tabs on Electronic Arts. We can help. Our new special report breaks down the risks and opportunities facing the company to help you decide if EA is right for your portfolio. Click here to get your copy now.

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  • Report this Comment On March 20, 2013, at 1:33 AM, throwintre wrote:

    No the CEO is not the problem, it's the whole damn company. If you can't produce a quality product then customers will not return. If your customer service is terrible then customers will not return.

    Take Two on the other hand knows how to produce quality games, and they listen to their customers. Even if they do make us wait for games, at least those games are of quality and not rushed to market.

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9/28/2016 4:00 PM
EA $85.00 Down -0.20 -0.23%
Electronic Arts CAPS Rating: ***